Due to the conflict between Ukraine and Russia, energy prices soared last year. Energy prices are again rising this year. The energy sector will likely benefit from production cuts and surging demand. Therefore, it could be wise to buy fundamentally sound energy stocks MPLX LP (MPLX), Gibson Energy Inc. (GBNXF), and CONSOL Energy Inc. (CEIX).
Below I have discussed several reasons why buying these stocks could be a step in the right direction.
The global energy demand has rebounded faster than expected from the pandemic lows amid tight supplies. This and strained oil and gas supplies are pushing prices higher.
The national average price of gasoline has been rising as oil prices touched their highest level this year. According to AAA, the national average for a gallon of regular unleaded gasoline is up from $3.45 a month ago to $3.61 on April 30, 2023.
The rise in oil and gas prices could be attributed to the cut in oil production by the OPEC+ nations. The OPEC+ countries collectively cut 1.66 million barrels of output per day.
Post the production cuts announced by OPEC+, Goldman Sachs has raised its Brent Crude forecast to $95 from $90 by the end of the year. The bank also expects Brent crude to climb to $100 by the end of 2024, up from $97 projected earlier.
According to the International Energy Agency (IEA), world oil demand will climb by 2 mb/d (million barrels per day) in 2023 to a record 101.90 mb/d, driven by a ‘resurgent’ China, which is expected to account for 90% of growth in oil demand. Oil prices will also likely get a boost from American refineries undergoing spring maintenance and the transition to summer gas production, which constricts supply.
For the week to April 21, 2023, crude inventories declined by 5.1 million barrels to 460.9 million barrels, exceeding analysts’ expectations of a fall of 1.5 million barrels. Gasoline inventory decreased by 2.4 million barrels to 221.1 million barrels, falling higher than expectations of 900,000 barrels.
Product supply of gasoline, which is a proxy for demand, rose nearly 1 million barrels per day last week to 9.5 million bpd, its highest since December 2021.
Therefore, it could be wise to invest in energy stocks MPLX, GBNXF, and CEIX to capitalize on the rising energy demand.
MPLX LP (MPLX)
MPLX owns and operates midstream energy infrastructure and logistics assets. It operates in two segments: Logistics and Storage, and Gathering and Processing. The company is involved in the gathering, processing, and transporting natural gas; gathering; transportation, fractionation, exchange, storage, and marketing of natural gas liquids; gathering, storage, transportation, and distribution of crude oil and refined products.
MPLX is expected to pay shareholders a quarterly dividend of $0.775 per share on May 15, 2023. Its annual dividend of $3.10 yields 8.86% on the current share price. The company’s dividend payouts have increased at a 3.2% CAGR over the past three years and a 5.2% CAGR over the past five years. Its four-year average yield is 11.3%.
In terms of forward EV/EBITDA, MPLX’s 7.72x is 42.5% lower than the 13.43x industry average. Its 12.50x forward EV/EBIT is 26% lower than the 16.89x industry average. Likewise, its 12.69x forward non-GAAP P/E is 37.4% lower than the 20.27x industry average.
MPLX’s total revenues and other income for the fiscal year ended December 31, 2022, increased 15.8% year-over-year to $11.61 billion. Its net income attributable to MPLX LP rose 28.2% over the prior-year period to $3.94 billion. The company’s adjusted EBITDA increased 3.9% year-over-year to $5.78 billion. In addition, its EPS came in at $3.75, representing an increase of 31.1% year-over-year.
Analysts expect MPLX’s EPS for the quarter ended March 31, 2023, to increase 6.8% year-over-year to $0.83. Its revenue for fiscal 2024 is expected to increase 2.8% year-over-year to $10.78 billion. It surpassed Street EPS estimates in three of the trailing four quarters. Over the past nine months, the stock has gained 7.6% to close the last trading session at $34.99.
MPLX’s POWR Ratings reflect this positive outlook. MPLX has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #11 out of 31 stocks in the A-rated MLPs – Oil & Gas industry. It has a B grade for Momentum, Stability, and Quality. Click here to see the other ratings of MPLX for Growth, Value, and Sentiment.
Gibson Energy Inc. (GBNXF)
Headquartered in Calgary, Canada, GBNXF is engaged in gathering, storing, optimizing, processing, and marketing liquids and refined products in North America. It operates through two segments, Infrastructure and Marketing.
GBNXF paid shareholders a quarterly dividend of $0.39 per share on April 17, 2023. Its annual dividend of $1.12 yields 6.81% on the current share price. The company’s dividend payouts have increased at a 4% CAGR over the past three years and a 1.6% CAGR over the past five years. Its four-year average yield is 6%.
In terms of forward EV/Sales, GBNXF’s 0.49x is 73.7% lower than the 1.87x industry average. Likewise, its 0.33x forward Price/Sales is 73.4% lower than the 1.24x industry average.
For the fiscal year ended December 31, 2022, GBNXF’s revenue increased 53% year-over-year to C$11.04 billion ($8.12 billion). Its gross profit rose 32.2% over the prior-year period to C$394.44 million ($290.06 million). The company’s net income increased 53.9% year-over-year to C$223.25 million ($164.17 million). Also, its EPS came in at C$1.50, representing an increase of 54.6% year-over-year.
Over the past month, the stock has gained 5.5% to close the last trading session at $16.91.
GBNXF’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
Within the B-rated Energy - Services industry, it is ranked #12 out of 44 stocks. It has a B grade for Momentum and Stability. To see the other ratings of GBNXF for Growth, Value, Stability, Sentiment, and Quality, click here.
CONSOL Energy Inc. (CEIX)
CEIX produces and exports bituminous coal. It operates through Pennsylvania Mining Complex and CONSOL Marine Terminal segment. The company’s Pennsylvania Mining Complex segment mines, prepares, and markets bituminous coal to power generators and industrial end-users. Its CONSOL Marine Terminal segment provides coal export terminal services through the Port of Baltimore.
CEIX paid shareholders a cash dividend of $1.10 per share on February 28, 2023. Its annual dividend of $2.15 yields 7.41% on the current share price. Its four-year average yield is 0.58%.
In terms of forward EV/EBITDA, CEIX’s 1.89x is 62.7% lower than the 5.07x industry average. Its 2.37x forward EV/EBIT is 71.5% lower than the 8.31x industry average. Likewise, its 2.75x forward non-GAAP P/E is 68% lower than the 8.57x industry average.
CEIX’s total revenue and other income for the fourth quarter ended December 31, 2022, increased 32.6% year-over-year to $637.15 million. Its net income increased 64.5% year-over-year to $193.02 million. Its EPS came in at $5.39, representing an increase of 63.3% year-over-year. Also, its adjusted EBITDA increased 99.3% year-over-year to $240.28 million.
Analysts expect CEIX’s EPS and revenue for the quarter ended March 31, 2023, to increase 225.8% and 65.3% year-over-year to $5.04 and $592.75 million, respectively. It surpassed consensus EPS estimates in three of the trailing four quarters. Over the past year, CEIX has gained 24.7% to close the last trading session at $59.34.
CEIX’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Quality and a B for Growth and Sentiment. It is ranked first out of 11 stocks in the A-rated Coal industry. Click here to see the other ratings of CEIX for Value, Momentum, and Stability.
What To Do Next?
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MPLX shares were trading at $35.06 per share on Monday morning, up $0.07 (+0.20%). Year-to-date, MPLX has gained 9.19%, versus a 9.27% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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